Inventory financing of bailed retail goods, such as floor plan or wholesale lending, is a form of financing in which each loan advance is made against a specific piece of bailed collateral. As each piece of collateral is sold by the dealer/bailee, the loan advance against that piece of collateral is repaid to the financing entity/bailor. The value of the collateral in bailed inventories of perishable goods, such as cases of frozen foods, bottles of wine, pharmaceutical products, and the like, while in the possession of the dealer/bailee, is subject to risk of loss that is a function of the environmental history of the goods and the duration of their storage. Because of the financing entity/bailor's inability to exercise full control over the bailed goods, the exposure to loss is generally greater than in other similar types of financing. Most dealer/bailees have minimal capital bases relative to debt. As a result, close and frequent review of the dealer/bailee's financial information is necessary.
In bailed inventories of perishable goods, the financing entity/bailor generally includes in the financing/bailment agreement with the dealer/bailee, provisions for variable interest rates on the loaned principal that are a function of the environmental history of the goods and the duration of their storage. Ranges of required environmental conditions to maintain the perishable goods in a marketable condition may be specified in the agreement. Because the goods are perishable, their intrinsic value over time decreases, and the rate of such decrease in value may depend on environmental factors, such as temperature, humidity, mechanical vibration, light levels, and the like. Correspondingly, the risk of loss increases if the required ranges of environmental conditions are exceeded. The interest on the principal to be paid by the bailee to the bailor depends on the agreement between the parties as to the risk of loss due to environmental factors. Current systems for electronic funds transfer from a dealer/bailee to a financing entity/bailor, fail to account for changes in the intrinsic value of perishable goods during a bailment, due to environmental factors and duration of storage.